Q4 2024 Canadian Pacific Kansas City Ltd Earnings Call
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Speaker Change: Please standby your program is about to begin if you need audio assistance during todays program. Please press star zero.
Margo: Good afternoon, My name is Margo and I'll be your conference operator today at this time I'd like to welcome everyone to see Pkc's fourth quarter and full year 2024 conference call. The slides accompanying today's call are available at Investor Dot C. P. K C. Our dotcom all lines have been placed on mute to prevent any background noise. After the speakers' remarks there.
Margo: Will be a question and answer session if you'd like to ask a question simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key.
Speaker Change: Or start to I would now like to introduce Chris Brewin, Vice President capital markets to begin the conference call.
Speaker Change: Thank you Margo.
Chris Brewin: Hi, everyone and thank you for joining us today.
Chris Brewin: Before we begin I want to remind you. This presentation contains forward looking information actual results may differ materially the risks uncertainties and other factors that could influence actual results are described on slide two and in the earnings press release filed with Canadian and U S. Regulators. This presentation also contains non-GAAP measures outlined on slide three.
Chris Brewin: Please note in addition to our regular quarterly financials their supplemental Q4, and full year combined revenue and operating performance data available at Investor <unk> CR Dot Com with me here today is Keith Creel, our President and Chief Executive Officer Medieval Ani, our executive Vice President and Chief Financial Officer.
Speaker Change: Bruce our executive Vice President and Chief Marketing Officer, and Margaret Our Executive Vice President and Chief operating officer. The formal remarks will be followed by Q&A.
Chris Brewin: The interest of time, we would appreciate if you limit your questions to one.
Speaker Change: It is now my pleasure to introduce our president and CEO, Mr. Keith Great. Okay. Thanks, Chris and thanks, everyone for joining US this afternoon to review our.
Speaker Change: <unk> fourth quarter and full year results as well as what our views are and what we see as an exciting year ahead in 2025.
Speaker Change: As always they always start by thinking the 20000 strong World Class Railroad as we call our CPE Casey family for their efforts to produce these results over.
Speaker Change: Over the course of what was a historic first year.
Speaker Change: The combined company and I can tell you is the leader remains my honor to represent these results that we're going to cover.
Speaker Change: We have the entire <unk> family that's it for the quarter. The team delivered revenues of $3 9 billion that was up 3% volume growth, 2% in the quarter, an operating ratio of 57.1, which is 160 basis points improvement core EPS of $1 29 up 9% versus last year.
Speaker Change: For the full year total revenues of $14 5 billion, which is up 5%.
Speaker Change: Volume growth of 3%.
Speaker Change: An industry best operating ratio of 61, 370 basis point improvement core P. S.
Speaker Change: 425 up 11%.
Speaker Change: Versus last year, and I can say all that despite a number of challenges we delivered on the guidance that we set out at the start of the year to produce double digit earnings growth and we did it safely I could tell you Mark will elaborate on the point, but I'm extremely proud of the CPT Casey continues to improve and our personal injury frequency ratio and again this year with lead the industry with a low.
Speaker Change: Must train accident frequency.
Speaker Change: At the year had a there's certainly no shortage of.
Speaker Change: But uncertainties that are out there from the macro to trade policies, but we're focused on controlling what we can control.
Speaker Change: From a guidance standpoint, but the opportunities that we have in front of us opportunities that this network uniquely enables we expect to deliver another strong year of growth as outlined in the press release and 25, we expect to deliver mid single digit volume growth and earnings growth of 12% to 18%, which is in line with the multi year guidance that we set out at our 23 <unk>.
Speaker Change: Yesterday.
Speaker Change: On the initiative side, we continue to invest in safety and service to support the growth in the fourth quarter I'm extremely happy to say, we completed the construction of the second standard the Laredo Bridge next week I'm excited to go to Laredo to hosted opening ceremony, where well Kristen the Patrick J items Myer International Rail bridge as many of you.
Speaker Change: No pets vision and leadership are instrumental.
Speaker Change: Not only in this project, but also the creation of C. P. Casey with carry on his legacy and the work that we do every day at this company that investment as well as others that we're making across our network will continue to support the growth that we're bringing them into the network in a safe and efficient manner.
Speaker Change: Beyond that uniquely enabled by this network.
Speaker Change: Gross like MMX 180, 181, again, the fastest and most reliable single line.
Speaker Change: Rail service with Chicago to Mexico in the industry.
Speaker Change: Connecting new origins and destinations across our ECP and then see in grain portfolios.
Speaker Change: Automotive utilizing our closed loop.
Speaker Change: Service solution, which is creating tremendous value for our suppliers and C. P. K C. In fact, I'm very happy.
Speaker Change: To share with the group that C. P. Casey was just recently last week.
Named GM supplier of the year for finished vehicles in 2020 for some would say is that impactful I would suggest yes I've been at this for 34 years has never occurred in any of my service in the industry and just order of magnitude at a 20000 suppliers only 100 are picked on an annual basis. So that's a meaningful recognition.
Speaker Change: From a voice of the customer that moves a tremendous amount to our team and certainly illustrates the strategic value of strategic partnerships credit to the commercial team and the operating team that are marketed and the executed this industry changing solution delivering the service that's unparalleled in the industry again. The award is just examples of the many service benefits.
Speaker Change: Our customers are enjoying from issue new unique network.
Speaker Change: So in closing I'm going to say short term things are out there certainly uncertainties for the macro to the trade policies. We've entered into 2025 with a tremendous amount of momentum that we fully expect to build on as we move throughout the year. The long term fundamentals of the North American economy and trade between three countries. This network uniquely connects remained unchanged.
Speaker Change: <unk> value proposition is as strong as it ever was we're extremely proud of the results. We produced in 'twenty four and we're excited about those that lie ahead of us in 'twenty five and beyond so that said I'm going to turn it over Mark Hill elaborate a bit on the ops John to bring some color to the markets and they deem or bring it back to me after he elaborates on the numbers.
Speaker Change: <unk>.
Speaker Change: Over to you Mark yes, Thank you Keith and good afternoon.
Speaker Change: I'm extremely proud of the performance of the operating team delivered this quarter and also throughout 2024 I'd like to thank each and each one of them for their hard work and dedication in delivering best in class service to the customers and their unwavering commitment to safety as I look at the results in the fourth quarter, we continued to drive year over year operating improvement.
Speaker Change: Just looking at train weight linked both improved by 4% locomotive productivity improved by 1%, while our fuel efficiency improved by 2%.
Speaker Change: These results speak to the efficiency of the network and they are worth highlighting given the impacts of the work stoppages, we had at port of Vancouver, and also the winter weather, we dealt with in the fourth quarter.
Speaker Change: Despite these challenges we rebounded quickly and had a strong end to the year, while we continue to deal with weather across parts of the network today, our resources are properly sized to meet demand and we are efficiently handling strong start with the volumes this year.
Speaker Change: Looking at safety, our FRE personal injuries were zero point 80, 426% year over year improvement for the quarter.
Speaker Change: And our FRE train accident frequency was 1.03, which is a 5% improvement year over year I'm very pleased to note. After the second year in a row see PKC led the industry with the lowest FRE reportable train accident frequency amongst the class one building on the legacy this 17 years of consecutive indoor.
Speaker Change: Leaving for CP.
Speaker Change: And although we will never stop striving to do better I am proud of our ceilings results.
Speaker Change: So turning to capital in 2024, we've made several key investments to drive capacity and efficiency.
Speaker Change: Engineering team is delivering efficient improvements now leveraged by leveraging technology to help us more accurately planned maintenance and capital investments across the network.
Speaker Change: During the year, we in service eight new Saudis as part of our merger our capital commitment to the STB. We also invested in Mexico with new infrastructure targeted toward <unk>.
Speaker Change: Mexico capacity and fluidity. These investments are paying off as performance has been stable throughout the year. We are delivering strong service to our customers. Finally, I will share my enthusiasm as well Keith with the opening of the patch.
Speaker Change: Patrick J Hudson might bridge the bridge is more than doubling the capacity on what is already the safest and most reliable U S. Mexican border crossing.
Speaker Change: Okay.
Speaker Change: The increased capacity is allow my team to optimize border crossings and improve the efficiency at the border.
Speaker Change: Now looking at 2025, our plan is to continue to support safe and efficient sustainable growth.
Speaker Change: Endpoint inefficiencies of capital investments across the network.
Speaker Change: We continue to make upgrades of the legacy Tcf locomotive fleet, which will allow more assets to lead trained in Canada.
Speaker Change: Improve our flexibility indirectly our powered north.
Speaker Change: We're also investing in new capacity, including merger sightings merger CTC, along with targeted investments in Mexico, and Kansas City to improve fluidity in these key corridors.
Speaker Change: Our economy and service. These investments is aligned closely with our growth outlook, ensuring that our network performance and growth.
Speaker Change: Volume growth of Blackstone.
Speaker Change: We also were taking delivery of 100, new tier four locomotives. This year that will support our growth improve reliability fuel efficiency.
Speaker Change: In closing.
Speaker Change: We are carrying positive momentum in 2025.
Speaker Change: Our network is strong and resilient.
Speaker Change: <unk> delivered mid single digit RPM growth along with the efficient reliable service that our customers expect from CPE Casey.
John: With that I'll pass it over to John.
John: Alright, Thank you Mark and good afternoon, everyone.
John: Team overcame certainly several challenges this quarter, including destruction at the port of Vancouver.
John: Weather impacts that mark spoke to in an uncertain macro to deliver solid growth strong pricing and unique value to our customers.
<unk> 'twenty 'twenty four out strong in 2025 is off to a good start our.
John: Our network is performing well and I feel good about the set up heading into this year and our ability to deliver mid single digit volume growth now.
John: Now looking at our Q4 results this quarter, we delivered freight revenue growth of 3% on 2% increase in our Tms.
John: <unk> was up 1% with strong pricing, continuing partially offset by fuel and mix.
John: Taking a closer look at our fourth quarter performance I'll speak on an FX adjusted basis, starting with bulk grain revenues and rpms were up 11% a record Q4 performance.
John: Gideon grain volumes were up 18% with increased screen to Vancouver, and Thunder Bay, driven by the improved Canadian grain crop.
John: Also saw higher volumes of Canadian grain move into Mexico as our network continues to deliver on these new synergies looked.
Looking forward our comps the first half of the year remained favorable in this area that coupled with our regulated grain pricing of approximately six 5%.
John: And continued synergies has us well positioned for Canadian grain.
John: Screened volumes grew 5% over the prior year, our U S. Grain franchise continues to benefit from a solid harvest steady demand and growth in new lanes as we expand our market reach.
John: In 2024 as an example, we moved over 130 trains from legacy case see PS Green franchise to markets South of Kansas City, most of which are completely new markets for these customers.
John: In potash revenues were down 4% and a 7% volume decline now despite solid potash demand in the quarter, our volumes were impacted by the strike and the challenging weather.
John: We moved record levels of potash, though in 2024 and with positive demand fundamentals and Canpotex is fully committed to strong levels through Q1, we are well positioned for another strong year of growth in 2025.
John: And to finish out our bulk business, our coal revenue was down 3% on an 8% decline in volume.
John: <unk> was mainly driven by U S coal volumes impacted by a specific customer outage.
John: While the work stoppage in weather impacted our Canadian coal shipments.
John: Now moving onto our merchandise franchise.
John: Energy chemicals, and plastics grew 2% on 1% volume growth, we continue to deliver volume growth across multiple commodities in this area few oil LPG biofuels driven from a variety of opportunities self help and synergies there.
John: This growth was partially offset by lower crude by rail volumes in the quarter. Now looking ahead to 2025, we see solid demand fundamentals, coupled with continued wins in plastics, lpg's and renewable diesel delivering another strong year in ECP.
John: Forest products revenues were up 1% on a 5% increase in volume now despite a soft base demand environment, we are delivering.
John: Unique synergy growth and extended length of haul in this space, including lumber shipments moving from Canada.
John: The way down to Texas.
John: Continue to work with our customers and supply chain partners in this space to deliver unique service solutions, therefore positioned for accelerated growth as the housing market and broader macro improves.
John: And the metals minerals and consumer products area revenue was down 4% on a 5% volume decline.
John: A softer demand environment, coupled with production challenges at a customer facility impacted our volumes in the quarter.
John: Clients were partially offset with higher volumes of Frac sand.
John: Now similar forest products with our development of two new aggregate trans load terminals and the startup of aluminum dynamics new facilities on our network in Mississippi in Mexico.
John: We are well positioned in MMC the benefit from the strategic network developments, along with further growth as the broader macro continues to improve.
John: Moving to automotive revenue was up 16% and 23% volume growth another record quarter and a record year in automotive this.
John: This team continues to raise the bar.
Freely pleased with our sustained differentiated performance in this space.
Speaker Change: Benefiting from our unique closed loop service model that Keith spoke to and key network developments and investments such as our Dallas auto compound growth and synergies are tracking well ahead of expectation with line of sight to future opportunities.
Speaker Change: In 2025 despite.
Speaker Change: Despite increasingly tougher compares we expect our auto franchise to continue delivering steady growth as we benefit from new contracts and the ramp up of market share gains.
Speaker Change: On the intermodal side of the business revenue was down 6% and 1% volume growth.
Speaker Change: Starting with domestic intermodal volumes were up 4% driven by growth in our refrigerated business.
Speaker Change: And our U S Mexico MMX service.
Speaker Change: Looking to 2025, we have a strong line of sight to continued growth in domestic as several opportunities start to take hold.
Speaker Change: Our business with Schneider and others on the Amex service accelerated to peak levels in Q4, and we expect continued growth in 2025, as we add our direct service between Mexico, and Texas, and the South East U S with <unk>.
Speaker Change: Additionally, americold cold storage warehouse co located in our yard in Kansas City will start ramping up mid year.
Speaker Change: This facility will serve as the anchor.
Speaker Change: Along with new CP Casey rail served co developments now in Mexico, and at Port of St John which.
Speaker Change: Which americold announced yesterday.
Speaker Change: This builds these.
Speaker Change: Projects build on our strategic collaboration with Americold as we further expand our reach of our unique rail served temp controlled supply chain.
Speaker Change: On the international intermodal front volumes were down 1%, primarily due to the labor disruption at the port of Vancouver. The decline was partially offset by growth from a new contract that continues to ramp up and higher volumes through the port of St. John.
Speaker Change: Now looking to 2025, we see a lot of opportunity in this space from increased customer utilization of our CP Casey ports and growth through our differentiated service offerings.
Speaker Change: So to close we rebounded quickly after the work stoppage and weather impacts our network is performing extremely well and we feel good about delivering mid single digit RPM growth in 2025.
Speaker Change: And while the macro remains uncertain, we are confident in our unique growth from synergies and self help.
Speaker Change: Along with our continued ability to achieve pricing that reflects the value of our servicing capacity.
Nadine: 2025 is going to be an exciting year and I look forward to sharing the success in the coming quarters with that I'll pass it over to Nadine alright, Thanks, John and good afternoon.
Nadine: Like to start by thanking the CP Casey family of Railroader for their tremendous effort and execution in our first full year as a combined company.
Nadine: Our best in class team of railroad cars continues to rise to the occasion to produce results that are exceptional.
Nadine: Now turning to our fourth quarter results on slide 12.
Nadine: <unk> reported operating ratio was 59, 7% in the core adjusted combined operating ratio came in at 57, 1% a.
Nadine: 100, 160 basis point improvement over prior year.
Nadine: Diluted earnings per share was $1 28, and core adjusted combined diluted earnings per share was $1 29 up 9% versus last year.
Nadine: Turning to our full year results on slide 13, CDK six reported operating ratio was 64, 4% and the core adjusted combined operating ratio came in at 61, 3%, a 70 basis point improvement over prior year.
Nadine: Diluted earnings per share was $3 98 and.
Nadine: And core adjusted combined diluted earnings per share was $4 25.
Nadine: An increase of 11% versus last year.
Nadine: Taking a closer look at our expenses on slide 14, I'll speak to the year over year variances on an FX adjusted basis.
Nadine: Comp and benefits expense was $619 million or $625 million adjusted for acquisition costs and the tax recovery.
Nadine: The year over year decline was driven by lower share based compensation and efficiency gains from improved train weights, particularly partially offset by inflation incentive compensation and volume driven increases from higher GTS.
Nadine: Looking to 2025, we expect our average head count to be up low single digits driving labor productivity gains against the mid single digit RPM growth, we expect to deliver.
Nadine: Fuel expense was $459 million down 13% year over year the.
Nadine: The decline was driven by lower fuel price and a 2% improvement in fuel efficiency for running longer heavier trains, which resulted in $6 million in P&L savings for the quarter. These.
Nadine: These savings were partially offset by volume driven increases from higher GTS.
Nadine: Materials expense was $116 million or $115 million adjusted for acquisition costs. The year over year increase was driven primarily by a long long term parts agreement that was put in place last quarter.
Nadine: This agreement is driving higher materials expenses, we have in sourced at subset of our maintenance work, but we are recognizing favorable offset within <unk> for net savings in the quarter.
Nadine: Equipment rents were $94 million.
Nadine: Year over year increase was driven by inflation and lapping gets pulled equipment credits received in 2023.
Nadine: Depreciation and amortization expense was up 6% year over year, resulting from a higher asset base.
Nadine: Purchased services and other expense was $538 million or $517 million adjusted for acquisition costs and purchase accounting.
Nadine: The year over year decline was driven by savings from the long term parts agreement I mentioned earlier efficiency gains and Ias as we consolidate systems and lower casualty expense.
Nadine: These savings were partially offset by inflation and increased maintenance expense.
Nadine: We continue to drive efficiency and cost synergy gains with excellent momentum heading into 2025, we expect these gains along with the impact of lower expected inflation to be sustainable and continue improving our cost structure going forward.
Nadine: Moving below the line on slide 15, other components of net periodic benefit recovery were $86 $87 million in Q4, reflecting the lower discount rate compared to 2023.
Nadine: For full year 2025, we expect this line to increase by $76 million from $352 million in 2024.
Nadine: Net interest expense was $203 million or $197 million, excluding the impact of purchase accounting.
Year over year decline was driven by our reduced debt balance.
Nadine: Income tax expense was $246 million or $353 million adjusted for a decrease in Louisiana, Louisiana State becomes.
Nadine: Tax rate.
Nadine: Purchase of Capex and the tax recovery for.
Nadine: For 2025, we expect see Pkc's core adjusted effective tax rate to be approximately 24, 5%.
Nadine: Turning to slide 16, we are generating strong cash flow. This year with cash provided by operating activities of $5 3 billion in 2024 are.
Nadine: Our commitment to safe and disciplined growth as reflected in our capital investments and in 2024, we reinvested $2 8 billion. This is slightly higher than our outlook to invest approximately $2 75 billion during the year with the increase driven by a higher U S dollar versus Canadian FX rate our.
Nadine: Our disciplined and strategic investments in safety and in capacity across our network position us to continue efficiently absorbing the growth that this merger has enabled.
Nadine: Looking to 2025, we expect to invest approximately $2 9 billion in Capex again. This is slightly higher than the outlook provided in our multiyear guide with the increase driven by expected FX impacts.
Nadine: We generated $2 7 billion and adjusted combined free cash flow for the year. We have continued to direct free cash flow after dividends towards repaying debt.
Nadine: Very pleased to see Moody's recently upgraded us back to our target <unk> credit rating.
Nadine: We certainly are getting closer to being in a position to return to increasing shareholder returns.
Nadine: And review of the quarter. The team continues to deliver discipline on price and cost control exceptional execution and industry leading results we have strong momentum entering 2025.
Nadine: Looking ahead, although the macro and trade policies remains somewhat uncertain, we expect to deliver 12% to 18% core adjusted earnings growth in 2025 underpinned by a mid single digit our Tam growth.
Nadine: We also anticipate generating strong free cash flow, while investing in the network and reinstating our share buyback program.
Nadine: Putting all of this together C. PKC offers a truly different differentiated investment profile.
Nadine: Combining our unique unique growth opportunities with industry best execution.
The results that we're sharing with you today and I'm excited for the opportunity that we have in 2025 and beyond with that let me turn things back over to Keith Okay. Thanks, gentlemen for the color I'll just hit the balance of our time, we'll open up for questions operator over to you.
Speaker Change: Thank you if you'd like to ask a question simply press the star keys and the number one on your telephone keypad, if you'd like to withdraw your question. Please press star two as previously highlighted please limit yourself to one question and your first question comes from.
Speaker Change: Chris Wetherbee with Wells Fargo. Please go ahead.
Chris Wetherbee: Yeah, Hey, thanks, good afternoon guys.
Speaker Change: Let me start on the RPM outlook and John you gave us some I think helpful color there, but maybe we can unpack it a little bit more and kind of curious how you're thinking about sort of first half second half cadence of that and if you can break it out how much you might be getting from specific new opportunities Tcs related our merger related opportunities or what you're seeing kind of in the underlying book of business.
Chris Wetherbee: With core customers.
Speaker Change: Alright, Chris.
Chris Wetherbee: All comments maybe on this so.
Chris Wetherbee: Maybe high level.
Chris Wetherbee: Think about it in terms of real simple, 2% to 3% tied to synergies.
Chris Wetherbee: And I would say, 2% to 3% tied to kind of our base organic business and in initiatives tied to the base railroad.
I can tell you I'm not really counting on the macro.
Chris Wetherbee: And hoping for maybe a second half tailwind.
Chris Wetherbee: If we see something there.
Chris Wetherbee: So it's really about self help.
Chris Wetherbee: I'll tell you.
Chris Wetherbee: Probably a little more weighted towards the back half, but I'll tell you. This.
Chris Wetherbee: After a really strong start.
Chris Wetherbee: And.
Chris Wetherbee: Not dissimilar to 2024, I think our setup, particularly the first half of the year do you think about our bulk franchise is.
Chris Wetherbee: Really good.
Chris Wetherbee: So to be honest with you I'm trying to.
Chris Wetherbee: I see a path to outperform maybe the first half in and then we'll see what the second half of.
Chris Wetherbee: Of the year brings.
Chris Wetherbee: I think where our comps looked pretty good on the grain front as I spoke to you. We've got a really strong outlook in potash and also <unk>.
Chris Wetherbee: Value has got a strong outlook for coal.
Chris Wetherbee: And the initiatives front or the synergy front just to give you a little color on that.
Chris Wetherbee: Continues to be really excited for the international space, we're really busy on that front.
Chris Wetherbee: John is going to prove to be a nice bump in improvement for us. So of course, we got Americold new facility that was announced there were going to call up some new services from Gemini.
Chris Wetherbee: At toward to Saint John and honestly that area.
Chris Wetherbee: Combined with what we do down at labs ROE and growth.
Chris Wetherbee: In Vancouver.
Chris Wetherbee: I'm pretty positive about that the automotive sector.
Chris Wetherbee: Can use to shine and I know theres a lot of maybe uncertainty.
Chris Wetherbee: For rolling around out there, but what I.
Chris Wetherbee: I think we feel irregardless of that we're set up well our closed loop system is producing results as Keith spoke to relative to GM and we see some other partners. They are coming on in in 2025 that theyre going to help pay dividends.
Chris Wetherbee: And maybe last I'd point to.
Chris Wetherbee: Our intermodal service and specifically our new route with the CFS.
Chris Wetherbee: Not only is that going to provide a lot of opportunity in and out of our new auto compound in Dallas for finished vehicles essentially even parts.
Chris Wetherbee: But we're super excited about what it can view in terms of our dry van business and refrigerated business in and out of Mexico that we can use on that route.
Chris Wetherbee: So I hope that gives you a little bit of flavor.
Chris Wetherbee: Particularly sort of.
Chris Wetherbee: High level around the split between synergies and sort of what I consider base based initiatives.
Speaker Change: Yes very helpful. I appreciate the color. Thank you very much.
Chris Wetherbee: Yes.
Sherman: Thank you and next we're going to go to <unk> Sherman with BMO capital markets. Please go ahead.
Chris Wetherbee: Okay.
Chris Wetherbee: Thank you.
Chris Wetherbee: <unk>.
Chris Wetherbee: Just.
Chris Wetherbee: Maybe follow up on Chris' question Paul.
Chris Wetherbee: A 4% to six platform I guess volume.
Chris Wetherbee: Kind of band that you've highlighted what's kind of how we should think about the volume.
Chris Wetherbee: Range versus the EPS range.
Paul: Thanks, Paul.
Chris Wetherbee: What's what.
Chris Wetherbee: What would be required to be.
Chris Wetherbee: The higher end of the range versus the lower end of the range I wondered la volume Bomba.
Chris Wetherbee: And really my question.
Keith: Keith can provide some.
Keith: Kind of perspective from your conversations with customers.
Speaker Change: The potential for you sorry.
Keith: Sorry policies changes.
Speaker Change: Maybe affecting behavior.
Speaker Change: Do you feel this mid single digit kind of volume growth. This year is quite.
Speaker Change: Quite independent from anything that happens on that front.
Speaker Change: Let me see if I can let me take a stab at the latter part of your question and then I'll, let John provide some color.
Speaker Change: John and his team has spent a tremendous amount of time as we all have concerns trying to learn about.
Speaker Change: What may or may not happen to the tariffs and the bottom line is we don't know.
Speaker Change: But what we do know is that in spite of.
Speaker Change: That volatile, perhaps uncertain, perhaps outcome, we still have investment that's not pulling back this doubling down.
Speaker Change: I've got one particular customer strategic customer there was only enabled and created as a result of this transaction. This merger single line service, where it's a new product to the market that made a commitment to me.
Speaker Change: And he says commitment many commitment.
Speaker Change: Announced expansions of its facilities to understand this is a long term play. This is a railroad built forever. We're not a railroad built for 48 months now not to say, we don't have to navigate that and I have to say, we're not going to be close to our customers, but I can tell you. This turning between these three nations has never been in my assessment will critical President Trump.
Speaker Change: Drove a hard bargain in the central to renegotiate and U S U S MCA back.
Speaker Change: At the beginning of the pandemic I believe that was our final finalized in 2020 than we had the pandemic occur.
Speaker Change: Hi chain.
Speaker Change: Security became an amplified issue that didn't exist before and that has really accelerated not only the expansion of near shoring and allies shoring, but the integration of our supply chain.
Speaker Change: And that's true in all spaces, you can talk about automotive I mean, if you really got into the details.
Speaker Change: Commodity by commodity have any engines and transmissions are built and in the U S to go to Mexico. So they can produce the vehicle that comes back to the U S that goes to the consumer market, which is the fact is we've got.
Speaker Change: 75% of production capacity in the U S and 25% that's got to come from somewhere else based on what we consume on an annual basis. So.
Speaker Change: So that type of.
Speaker Change: Mr dependence that type of need is woven into this economy and I think in hand.
Speaker Change: Range with responsible the range makes sense some risk.
Speaker Change: If it's not as volatile as we think it is but don't expect us to be at the 12 expect us to be end up enough.
Speaker Change: That's responsible conservatism, we fill up as our responsibility to ensure that our investors understand we don't have our head understand we're not sitting on the sidelines. We're engaged we're going to be at the table, we're going to be involved I am going to be involved in.
Speaker Change: At the table as far as working with the business communities and the government in Canada I'm going to do so in the U S.
Speaker Change: And I'm going to do so in Mexico, we have a vested interest to make sure that our shareholders are customers' interests are represented and then the and the right thing and Mr. Trump's desires to to build a stronger America to bring jobs to America to balance trade I think is going to be accomplished and we are going to see I think exceptional.
Speaker Change: Between the three nations.
Speaker Change: Thanks, Ed I think the other thing a lot of people get wrapped up in this I tend to listen to what people say.
Speaker Change: And I know that.
Speaker Change: There's things that are said and unsaid, but when I hear a president that I take very seriously say that what I am concerned about Canada, and what I'm concerned about Mexico is that you take action to address immigration concerns any legal drug trade concerns that are occurring at our borders.
Speaker Change: I've seen since he said that.
Speaker Change: Now I will impose a very significant number but what I have seen since the end is a very responsible Canada take action I've seen Mexico take action, Firstly went down to Mexico city and ever present schoenbaum the week before Christmas.
Speaker Change: Very productive discussion with her about all of our business about what our network entails and how we can align and help her achieve mexico's ambitions, but at the same time the <unk>.
Partnership on the travel that will trade between the three nations and a very extreme unique way.
Speaker Change: And that resonates that makes too much sense not to resonate so at the end of the day.
Speaker Change: Again, we don't know where to put the pen exactly we think the range is the responsible way to represent that and I would be extremely surprised.
Speaker Change: If it's not at the higher end versus the lower end unless theres just some crazy on some volatility.
Speaker Change: Certain people stick their head and saying that I, just don't see that occurring I don't think Thats, an England best interest and I think the pragmatic approach will carry the day and we're going to come out on the high side not on the low side.
Speaker Change: Okay.
Speaker Change: Got it.
Speaker Change: So maybe I'll, just add a little bit to that.
Speaker Change: I've spoken to dozens and dozens of customers here.
Speaker Change: Last month, or so and I think the reality is the growth platform and the initiatives that.
Speaker Change: That we have line of sight too.
Speaker Change: Arent really going to be impacted.
Speaker Change: We're going to be focused on delivering those unique whether it be synergies or base opportunities.
Speaker Change: We're going to be fostering the base railroad demand in our bulk franchise that I spoke to.
Speaker Change: And frankly, if you look back to 2018 in 2019 during the last set of.
Speaker Change: Tariffs.
Speaker Change: I think the reality was that these supply chains are very complex, it's commodity by commodity it's lane by lane, it's customer by customer and ultimately what happens in and I think what we saw is there wasn't a lot of change it's hard to change these complexities over overnight.
Speaker Change: So we're going to keep laser focused on the opportunities ahead of us.
Speaker Change: Just like any sort of volatile demand environment. This team will be ready to adapt and react.
Speaker Change: If something material does change in one direction or the other and otherwise we're going to be laser focused on delivering the growth.
Speaker Change: We just spoke to.
Speaker Change: Okay.
Speaker Change: I appreciate it thank you.
Speaker Change: Yes. Thank you.
Brian: And our next question comes from Brian <unk> with Jpmorgan. Please go ahead.
Hey, Thanks appreciate you taking my question, maybe one for <unk>.
Brian: Sitting here looking into next year can you give us some of the.
Brian: Assumptions or maybe your visibility into the inflationary environment.
Brian: Environment or hopefully disinflationary environment on some of the bigger bigger line items.
Brian: Maybe it's also some commentary.
Expectations for buyback.
Brian: Buyback and how we should think about that starting up and at what pace and at what time. Thank you.
Brian: Sure Thanks, Brian So.
Speaker Change: Inflation I think its something thats.
Speaker Change: Impacted the industry, a fair bit as far as <unk>.
Speaker Change: Absorbing the costs.
Speaker Change: The last two years and not being able to.
Speaker Change: Fully reprice as contracts come up in price above inflation and so.
Speaker Change: We have been.
Speaker Change: We've absorbed a lot of that.
Speaker Change: On the.
Speaker Change: Expense side on labor.
Speaker Change: On purchase services and materials.
Speaker Change: With steel prices commodity prices and of course.
Speaker Change: Tightness in labor market, so that being said we've seen.
Speaker Change: Inflation moderate and in some areas kind of non labor closer to two 5% the past year, which is much more normalized.
Speaker Change: We've seen particular leader in Canada of inflation come down closer to two and then on the labor side, it's moderated.
Speaker Change: To start with something with a three as opposed to what we faced with the with the P. B et cetera. So it's much more normalized environment from a inflationary cost side I think Reno, we anticipate getting pricing in that.
Speaker Change: 445% range.
Speaker Change: For the year. So certainly we see an opportunity there to see improvement support margin improvements in 2025 from it's from pricing above inflation.
Speaker Change: And on your second part of your question as far as the buyback yes.
Speaker Change: <unk> said, we wanted to get our leverage back down below three closer to two and a half.
Speaker Change: We've accomplished a lot we've paid back by the end of this week it will be close to $7 billion Canadian dollars of debt.
Speaker Change: Post our announced transaction and post our deal so we've been very successful in Delevering.
Currencies hurt us a little bit Canadian dollar.
Appreciating and being at.
Speaker Change: 52 week low certainly.
Speaker Change: Our balance sheet and hurt our leverage number but the normalized for a more kind of long term average on the Canadian dollar we are closer to that 252 points six level. So.
Speaker Change: All that means is yes, we're excited about being returning to the market you can expect us to.
Speaker Change: Continue to invest back into the network this year about $2 9 billion.
We wanted to address the the dividend to an extent our yield is.
Speaker Change: Eight 7% in <unk>.
Speaker Change: Even lower at this level.
Speaker Change: So we will do something there, but we're going to be balanced in how we return cash to shareholders and then we.
You can see that the model spits out significant significant amount of cash and we will use the rest to.
Speaker Change: Buy back shares and so more to come.
Speaker Change: We've talked long term when you look at our Investor day that range of about 3% to 4% is what the buyback kind of spits out when you factor in our Capex and dividend approach in getting our dividend closer to $25, 30% payout. So that's kind of what you should expect from us.
Speaker Change: Okay. Thanks, very much sandy.
Sandy: Thanks, Brian.
Speaker Change: Thank you and your next question comes from Steve Hansen with Raymond James. Please go ahead.
Steve Hansen: Yes. Good afternoon guys. Thanks appreciate the time look if we think back on to 'twenty. Four you were obviously hit by a whole host of diversions in disruptions across the network.
Steve Hansen: No need to go through them all here, but if I can stick the tariff issue aside for a minute.
Steve Hansen: You feel about the repeatability of those types of events going forward, whether its strike at the port terminals the workers themselves on the railroad.
Steve Hansen: I guess, we won't take wildfires and things like that but how do you feel about the normalization of that effect in the 25.
Steve Hansen: Well the way I look at it I think they were episodic I think 2024 was especially the multiple strikes we had with the ports.
Steve Hansen: Our labor strikes I think it was a very challenging, especially in Canada year.
Steve Hansen: With episodic events I don't see occurring in 2025.
Steve Hansen: Reoccurring and I say that because of a couple of things that are extremely encouraging that a distributional and developed.
Steve Hansen: We just literally this week negotiated.
Okay.
Steve Hansen: In agreement with uniforms, we negotiated an agreement with <unk>.
Steve Hansen: <unk>.
Steve Hansen: Next week, we'll be with USW.
Steve Hansen: Claude the Union leadership there for.
Steve Hansen: <unk>, the wisdom, and allowing us to come to an agreement that is good for our customers good for our employees.
Steve Hansen: At the same time and the most assuredly good for reliability, because I can tell you.
Steve Hansen: And I've said this publicly in Canada.
Steve Hansen: There's been so much strike fatigue, and labor fatigue that Canada's reputation on the world stage as being a reliable supply chain partner has been challenged.
Steve Hansen: And put in jeopardy.
Steve Hansen: And I am encouraged that those union leaders understand that I am encouraged that our employees understand that our employees want to be treated well paid well and be part of a success story that enables growth and prosperity for their families as well as our customers.
Steve Hansen: We're at a place now pending the ratification of those agreements.
Steve Hansen: We're going to have an award from cap is on the TCR C. C. A 2025 with a positive outcome from that route those ratification votes with no work stoppages, we have labor reliability, what a refreshing thing too.
Steve Hansen: To be able to say not only the Mark you said you best professional but John go sell this business to the customer it's going to be a fluid railroad.
Steve Hansen: The success enabler help them win in their markets. So we can win with them. That's a pretty good place to D C and I'll ask it hasn't been this way across the board for some time and the last thing I'll say about that from <unk>.
Steve Hansen: Our reliability standpoint, the terms of those agreements before year terms, they're not short your terms. So we're talking about four years of labor stability with a clean platform in sleep.
Steve Hansen: Nothing but positive railroading in growth and I think that's a great place to be and especially in light of 2024.
Steve Hansen: And Thats exciting I appreciate the time.
Steve Hansen: Thanks, Steve.
Daniel: Your next question comes from Daniel <unk> with Stephens, Inc. Please go ahead.
Daniel: Yeah, Hey, good evening, everybody. Thanks for taking my questions.
Daniel: Maybe to follow up on earlier topics that you mentioned in the script, you're well ahead on synergy capture you have line of sight into some more opportunities.
Daniel: Thank you mentioned, 2% to represent extra growth of growth. This year from synergies, but can you just expand on what's running better than plan, where are you seeing these opportunities may be increasing.
Daniel: And then we will not be providing a more formal outlook. These topline and cost synergies continue into 'twenty and beyond should we expect that there is more than you initially thought or are we just finding the synergies earlier in the process.
John Daniels: Yes Daniels of John So.
John Daniels: I think first of all the opportunity pipeline, we had identified at Investor day.
John Daniels: Hasnt, let up I feel really good about what's out there and I think hence you've seen us deliver on that and Youre right. We are we are ahead of where we thought we are going to be at this point in the journey.
John Daniels: I think we're pretty open around closing out 2020 for in excess of 800 million.
John Daniels: Type run rate and Super pleased we have delivered and in a little bit beyond that.
John Daniels: As I think about 2025, I see no reason with what I have teed up out there the team at teed up out there that.
John Daniels: That we can't deliver.
John Daniels: Another $300 million on on top of that.
John Daniels: And its across really all lines of business and that's what makes us unique and frankly fun.
John Daniels: I'm just thinking about it.
John Daniels: We've got a lot of success in our in our automotive business.
John Daniels: But I'm, telling you we're still early to mid innings on that and I see a number of opportunities that exist not only with the Oems.
John Daniels: And leveraging some of the capacity in new routes that we've added but also in the auto parts side of that we've just scratched the surface there.
John Daniels: I already talked about our MMX service and the gross debt Schneider has seen on our franchise, but I fully expect that to continue and we really haven't been able yet.
John Daniels: Net to develop because we're waiting on the Americold facility in Kansas City, our reefer business.
John Daniels: As you recall, that's a significant opportunity we laid out at Investor day that is really targeted at a at a market that's dominated by trucks.
John Daniels: You take the combination of our facility in Kansas City.
John Daniels: Our route into Atlanta, a route and facility with Americold.
John Daniels: Does that stay will work on in 2025, and Mexico combined with the new facility in Port St. John increases this ecosystem that we've talked about in the reefer space that again, we really haven't scratched the surface on that yet.
John Daniels: And then maybe the other piece that I think it's worth mentioning and I say this because it helps lends itself to that future that you spoke to and sort of how long. These these opportunities that are out there for <unk>.
John Daniels: Talked about in my remarks, the new facility with aluminum dynamics.
John Daniels: In Columbus, Mississippi, and also down in Mexico.
John Daniels: That is an opportunity with both of those that are going to open up.
John Daniels: And for Middle of Q3 of this year that are not only going to present sort of base railroad new opportunities in.
In the steel and aluminum side of the business for us, but also tremendous synergies linking some of our production.
John Daniels: In Canada and also our production in Mexico up into the into the U S. So I'm.
John Daniels: Excited about that and then maybe last the team.
John Daniels: And more to come on this but.
Speaker Change: The team has worked hard in the Dallas market to continue to develop our relationships with the customers in that area.
Speaker Change: We've got a number of trans load facilities currently in that market, but I think the opportunity to expand ourselves and our footprint there.
Speaker Change: Cited about that again that'll be more of a second half of this year story.
Speaker Change: One I think that lends itself into linking.
Speaker Change: These franchises in three countries and delivering.
Speaker Change: More goods in and out of the fastest growing really U S city in the United States.
Speaker Change: Hope that provides a little color or more color.
Speaker Change: Yes, I appreciate all the detail best of luck.
Tom <unk>: And your next question comes from Tom <unk> with UBS. Please go ahead.
Okay.
Speaker Change: Yes, good afternoon. So.
Tom <unk>: I think nadeem, you talked a bit about.
Tom <unk>: Inflation easing a bit I think you also mentioned pricing outlook is constructive me I don't know me if that is kind of similar to the 45% similar to last year. How do you think about the pace of or improvement in kind of.
Tom <unk>: Are we getting like 50 859 and then.
Tom <unk>: I guess, if you say beyond 25% it sets up pretty well do you think that keeps going at this as kind of a runway for further.
100 basis points, a year or something like that or is there.
Tom <unk>: Kind of slows down a bit when you get to $57 58. So I guess you are really looking for some of our comments. Thank you.
Tom <unk>: Sure. So I mean, obviously, we're coming off a <unk> 57 in Q4. There is there is some seasonality of course as you know in Q1, and especially up North and then you've got some some.
Compensation incentive compensation accruals and you've got you don't have as much capital work available in Q1. So there is sensitivity around that but that being said we had a fairly.
Tom <unk>: <unk> first quarter a year ago.
Tom <unk>: Much.
Tom <unk>: Much.
Tom <unk>: More conducive operating environment. So I think there's more snow in Florida than we've had in Calgary. This year. So overall I think it's.
Tom <unk>: Supportive to seeing a continued some benefits as far as they are.
Tom <unk>: Year over year in Q1 I think.
Tom <unk>: If you think about all the one offs, we had a year ago.
Tom <unk>: So described death by a thousand cuts with all the stoppages and outages.
Tom <unk>: Casualty costs et cetera. So.
Tom <unk>: Not planning on those occurring youre always going to have something but not to that extent. So I think there's some opportunities on that front. So I certainly see to your point on pricing above inflation, and just operating execution, Mark and team running continuing to continually improving the network velocity.
Tom <unk>: And productivity across the network Mexico in particular, that's all going to be supportive of operating leverage we start getting the volume that we're talking about bringing that to the bottom line I think we can see.
Tom <unk>: That sub 60 operating ratio again, and then if you factor in going forward, we've talked about 100 basis point type of improvement.
Tom <unk>: Part of our Investor day, and that's just again.
Tom <unk>: Operating more effectively always continuous improvement that's kind of a cornerstone of how Keith has taught us to lead in this organization.
Tom <unk>: And so 100 basis points over time, each year should be the goal and should be.
Tom <unk>: Product of the outcome of running efficiently and safely and as.
Tom <unk>: As far as long term goal.
Tom <unk>: I'll leave that for you, it's let's let's get sub 61 and then.
Tom <unk>: We will go from there.
Speaker Change: Okay, great. Thank you.
Walter: So your next question comes from Walter <unk> with RBC capital markets. Please go ahead, yes, thanks very much operator, good afternoon, everyone.
Speaker Change: I want to come to automotive.
Speaker Change: You've seen really strong growth in your automotive Youre automotive component in 2024, just curious now as going forward do you see potential tariffs is impacting your business there and I know wildly has been a big part of your growth in automotive do you have any perspectives that you can share with us on the on the Norfolk.
Speaker Change: Southern purchase option in the wildly terminal.
Speaker Change: Alright, I'll take that.
Speaker Change: I'll take a shot at it.
But my view is.
Speaker Change: So while the option and I'll, let John maybe touch on the tariffs in the automotive side Walter.
Speaker Change: Just for perspective, everyone understands what we're talking about back in 2006, and the Meridian LLC was created in partnership with Acs.
Speaker Change: And then S.
Speaker Change: There was an option to purchase.
Speaker Change: The Dallas intermodal terminal, which at that time as a place called Zika junction.
Speaker Change: That was conceptualized and baked into the agreement. It was a one time one year window that opened up in 24 the closes in April.
This year.
Speaker Change: So what does that kind of thing.
Speaker Change: To purchase just that terminal now it's important to understand that it's just that terminal. So many of you have been too are wildly terminal, where we opened up our new automotive terminal, it's adjacent to the intermodal terminal south of the mainline.
Speaker Change: About a 500 acre footprint, it's about 90, some odd acres 500.
Speaker Change: Essentially that's.
Speaker Change: So if it were to be purchased if they weren't exercised the option.
Speaker Change: Essentially lack of a better term is in Ireland.
Speaker Change: Today, we own it we operate it.
Speaker Change: They are the customer, let's say you're slip rates for the region.
Speaker Change: We take their money.
They've got to pay a fair price. That's all kind of worked out an agreement we can redeploy the capital in and make money with it and we become the customer and were treated in a fair and equitable way the same way we treat them today so to me.
Speaker Change: It's nothing to be concerned about at all because truly the true value of it is it's how you package and how do you create the total value for the customer because standalone.
Speaker Change: Do you think about it historically and this is the way I look at things. The facts are that was not a big growth engine for CNS and case, yes.
Speaker Change: Whatever reason you go back and look at the data.
Speaker Change: And I went back as far as 2018 number 195% of the business originates terminates outside of that terminal a discounted from NFS sports.
Speaker Change: So essentially with an S terminal always has been and then S terminal as far as the destination standpoint that we've changed a little bit of that but theres been no runway and growth because the <unk> competitor in that lane for that terminal. If you look at it standalone.
Speaker Change: Interstate so has the ebbs and flows go trucking capacity oversupply under supply rates go up rates go down it's going to ebb and flow.
Speaker Change: I'm not saying it doesn't have some value, but the true values. When you package it with an automotive compound and you create an ecosystem that complement this automotive closed loop system.
Speaker Change: The possibility now to ship.
Speaker Change: Automotive parts that play a role into production at those finished vehicles that go to those auto racks that operating that closed loop system and when you can do that around our entire network. The strongest automotive network. That's been created in the industry. That's when you start to move the needle.
Speaker Change: So again, my guess is and Ive heard the same saber rattling and I know that.
Speaker Change: In his recent challenges where their shareholders. Some of those shareholders have strong views that there's a lot of untapped lost value there.
Speaker Change: Quite frankly I've been doing this a long time.
Speaker Change: So that they can unlock and I hope that they can unlock some growth because the reality is this railroad's built to grow with both railroads.
Speaker Change: The traffic that goes to and from all of the rail is going to come over or route we.
Speaker Change: We control it we dispatch it just kind of go perhaps in this case to their outlet, which they share with us and have to service and so we're going to compete.
Speaker Change: That Alan we're going to work hard with CNS as well as with <unk>.
Speaker Change: They are a competitor in the east to growth on the southeast markets into the Dallas market in the triangle down to the Mexican markets.
Speaker Change: So I hope that if they do buy Walter that they're motivated and they want to grow I hope that they do what they haven't done in the past because guess, what we get to be part of that and we'll work closely with them and at the same time, whether they do or they don't one thing you can bet. Your money on this answer if renewal team. These hunters that we have and John.
Speaker Change: Marketing team are going to work closely with all strategic partners at Schneider, the PSX, but any other player wants to bring traffic to the table to take trucks off the road and then utilize this unique network to leverage that trial.
Speaker Change: We're going to grow into Dallas, we're going to go into Mexico, we're going from Mexico into the southeast and a very unique way.
Speaker Change: So again.
Speaker Change: What I will say that they do.
Speaker Change: Yes, I do I will shake their hand will take their money, we'll redeploy it will make a great return with the with the sizable amount of money, they're going to have to pay us to buy it out and we will still compete.
Speaker Change: Against them and partner with them nothing changes, we still grow we still net net we're in a beautiful position of strength, however that shakes out.
Speaker Change: Walter.
Speaker Change: So just a couple of comments maybe on the first part of your question, but I would maybe start by just emphasize in keith's comments the real growth.
Speaker Change: Cross that Meridian speedway and into the southeast as in and out of Mexico and it has been.
Speaker Change: Untapped.
Speaker Change: And of which the speedway and our route.
Speaker Change: With both of those carriers.
Speaker Change: Can compete everyday against trucks, when it's marketed and sold the right way.
Speaker Change: And also the amount of vehicles that are being short seed out of Mexico.
Speaker Change: And in customers looking for solutions against that.
Speaker Change: It's going to be also a big part of that growth over that railroad.
Speaker Change: As you think about the tariffs.
Speaker Change: And again, we're staying very close to the Oems I am looking at the opportunities we have in 2025, and 2026 and very much isolation right now relative to.
Speaker Change: A lot of the tariff talk and we are laser focused with those folks are delivering solutions.
Speaker Change: Fact of the matter is we have had significant uptake in this product because it's giving the customers a world class product product that frankly, they have not enjoyed from other routes.
And they can count on the car supply and that matters.
Speaker Change: So I have a lot of conviction.
Speaker Change: That will continue to deliver these opportunities and projects and look at the end of the day.
Speaker Change: North American sales are what they are they are 16 17 million vehicles a year.
Speaker Change: Yes.
Speaker Change: As production capability as we sit here today, and maybe $10 million.
Speaker Change: Of that the demand to fulfill the need in the United States for vehicles has got to come from from somewhere and whether it's the European market. The Mexican market. The Canadian market, we're going to be there to provide a solution.
Speaker Change: And that's what we're going to continue to be laser focused on.
Speaker Change: That's right that's I appreciate the color.
Walter: Yes, Thank you Walter.
Speaker Change: Thank you and your next question comes from Scott Group with Wolfe Research. Please go ahead.
Speaker Change: Hey, Thanks afternoon guys.
Speaker Change: A couple of things.
Speaker Change: Really big Carload Artyem spread in 24, how are you thinking about that this year and then maybe Keith longer term on the.
Speaker Change: On the operating ratio I totally get the deems point, let's get the sub 60, and then we'll sort of.
Speaker Change: Figure out where we go but.
Speaker Change: When we started this.
Speaker Change: Journey, we were thinking mid fifties, even some people may be thinking low fifty's on or is that just the wrong way to think about.
Speaker Change: Where we can go over time or is that still somewhat.
Speaker Change: Over time still in the cards.
Speaker Change: Well, let me I'll take the first part of that Scott I haven't envisioned the low fifty's number.
Speaker Change: Again, the operating ratio is an outcome. So if we grow the revenues right way.
Speaker Change: Continue to run a fluid railroad and we get to.
Speaker Change: The potential of this network over time beyond.
Speaker Change: I know that 2028 timeframe as low fifties, a possibility sure. It is I'm not planning for it but it's within the realm of possibility but.
Speaker Change: But as far as the other guidelines that you're talking about.
Speaker Change: That path.
Speaker Change: Does that double nickel is something that is certainly real now theres a lot of uncertainty between now and then we've got volatility in the marketplace, but again unless things get really crazy, we do a good job. We continue to execute the way we are executing will grow with our customer strategically we don't oversubscribed the network.
Speaker Change: This thing this network's built.
Speaker Change: To run very efficiently.
Speaker Change: Do it at a low cost sustainable way and produce not only strong industry, leading earnings growth, but at industry best if that industry best or.
Speaker Change: Scott if I could if I could just make a comment on it as well if you think about things we do in operating.
Speaker Change: We have our meeting once a year at the end of the quarter over quarter, and we pull out double digit millions of dollars within the operating department to sign up for certain things to reduce costs. Those are the things that we add to the operating ratio to drop it and if I think about just deploying your capital I'll tell you when you look at the some of the metrics Thats.
Speaker Change: Turning in Mexico today with double digit speed increases all of this is because we are deploying the capital in the right bottleneck areas to get the locals off the mainline. So trains can travel down to maybe we could switch the customer we can be satisfied with customer satisfaction, but also get everything we need with fuel efficiency of these locomotives.
Heavier trains longer trains, we don't have to start and stop and then when we talk about deploying capital or some new locomotives that were bringing on board this year very fuel efficient.
Speaker Change: And again on the.
Speaker Change: The fuel of excellence that we have but we deployed.
Speaker Change: This team is just bringing the cash register with some of the fuel efficiency, we're getting and those are the things that are bringing it down.
Speaker Change: Were exceptional right now what we're doing with.
Speaker Change: Savings.
Speaker Change: Dwell with.
Speaker Change: Locomotives in Mexico, Yes, I think I think you're being modest Scott I'll share with you just just to kind of sneak peek here, if I look at legacy <unk> Ckc.
Speaker Change: Network year over year ROE network speeds.
Speaker Change: Improved 22% dwell.
Speaker Change: Well, 8% GTS for operating horsepower, almost 24% car miles per car day, almost 13% and thats without the full benefit of the.
Speaker Change: Six what I call productivity infrastructure projects that we executed in 2024 that literally have just came online towards the end of the year.
Speaker Change: So things are moving more fluidly. The culture is evolving we have got a tremendous amount of pride.
Speaker Change: Driving capacity, we're becoming better railroad is every day they are the.
Speaker Change: Possible in Mexico.
Speaker Change: Such an untapped.
Speaker Change: Diamond in the rough state is evolving everyday to become.
Speaker Change: Better and better and I'd say all those improvements if you look at like GTS for operating.
Speaker Change: Horsepower.
Speaker Change: Our standard legacy.
Speaker Change: C P.
Speaker Change: We want to go close to 200 is.
Speaker Change: Is the number.
Speaker Change: That number was 23% improvement is still at an eight now we will ever get us to 200, no because theres a lot of industrial work the links the fronts at the same the mix is different.
Speaker Change: So think about it if we just improve it from 80 to 120 and the number of locomotives, we use in Mexico and as we grow the number of locomotives will continue to increasingly use in Mexico.
Speaker Change: So.
Speaker Change: It's.
Speaker Change: It's exciting and again Mark stand modest it's a lot of hard work to get it done but the fall in the right lever is driving the right culture, making the right investments strategically and these are the outcomes when you do that.
Speaker Change: Control your cost.
Speaker Change: Right to the bottom line in.
Speaker Change: However, you want to measure it its pretty impressive.
Speaker Change: The operating ratio side and on the earnings side.
Speaker Change: Thank you guys I appreciate it.
Speaker Change: Thanks Scott.
And your next question comes from Brandon <unk> with Barclays. Please go ahead.
Brandon <unk>: Good afternoon, and thank you for taking the question.
Speaker Change: Maybe for Keith or Marc I mean, you guys have gone through a lot of labor agreements now is there any harmonization that you are like seeking to achieve here longer term between Mexico, and the U S and Canada and are you working towards some of those longer term productivity calls on these contracts.
Speaker Change: I would say for the U S. We would be looking at engineering, how we can deploy.
Speaker Change: Capital gains throughout the year instead of having to reduce forces in the winter months that for sure.
Speaker Change: Obviously, we are still negotiating some of the hourly agreements on the on the Casey's property, we'll work through those over the coming year, but.
Speaker Change: Certainly some things that we're doing in that space when I look at Canada, obviously, where we're still going back and forth with TCR see actually start back conversation next week and then.
Speaker Change: Keith touched on it earlier down in Mexico.
Speaker Change: We just can't change overnight, it's going to be incremental change it we have each year.
Speaker Change: That will help us with the locomotive sides of train fuel optimization all of that type of stuff and it's just going to take time in that space, but there is upside to it for sure.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: And your next question comes from Kevin Chiang with CIBC. Please go ahead.
Kevin Chiang: Good afternoon. Thanks for taking my question I guess I was just wondering when you think of tariffs. So maybe what that means for the energy patch here in Canada.
Speaker Change: The view was that could result in a widening of differentials just wondering how you might think that plays out for your crude by rail franchise.
Kevin Chiang: As those potentially widen out if we do get tariffs this weekend.
Kevin Chiang: Well I think so far Kevin.
Kevin Chiang: <unk> seen us.
Kevin Chiang: The uncertainty has created a little bit more of a.
Kevin Chiang: Narrowing and.
Kevin Chiang: Looking at some of our customers in the U S looking for alternatives now.
Kevin Chiang: We'll see maybe some certainty.
Kevin Chiang: Bringing some opportunity back or allows the market to sort of settle out and think about it differently.
Kevin Chiang: Now the other interesting thing is.
Kevin Chiang: We've seen it spur more in bond type shipments and more folks looking at opportunities from Canada, all the way down to Mexico.
Kevin Chiang: As a potential alternative Denver growth area.
Kevin Chiang: Separate in United States.
Kevin Chiang: So.
Kevin Chiang: Right now I think the uncertainty is his hurt the markets a little bit.
Kevin Chiang: We'll see what the numbers and how the tariffs end up looking in.
Kevin Chiang: And certainly adapt and adjust from there.
Kevin Chiang: For that space.
John Daniels: That's great color. Thank you John.
Kevin Chiang: Thanks, Tom.
Speaker Change: Your next question comes from Ken <unk> with Bank of America. Please go ahead.
Kevin Chiang: Hey, great good afternoon.
Speaker Change: Congrats on a.
Speaker Change: Great to see industry, leading 57 O R.
Speaker Change: It did include harsh winter weather at the end of the quarter and strike at ports.
Speaker Change: I guess, which really impacted us on the team I guess can we go a little short term. It sounded you might have touched on this earlier, but is there a normalization beyond what you've already removed our thoughts on the cost impact for the quarter as we think about that sequential <unk> to <unk> transition versus normal seasonality.
Speaker Change: And then a minor question does the 12% to 18% growth target include the buyback already in there or is that incremental to the target.
Speaker Change: Yes, so I'd say that part of giving the range can has to factor in that.
Speaker Change: A buyback is in the target is in the guide was just depending on when the timing of that buyback because obviously the later in the year.
Speaker Change: You get a buyback for less of an impact it will have in 'twenty five, but we'll have more of an impact in 2006. So I'll just say this that we do have somewhat of a buyback embedded in the guidance, it's not going to have a meaningful necessarily impact.
Speaker Change: And obviously, it's going to be dependent on number of shares we do for the.
Speaker Change: On July 1st effectively before you can get a benefit.
Speaker Change: Especially with interest rates and so forth so.
Speaker Change: Some modest benefit in the in the 12% to 18%.
Speaker Change: We didn't.
Speaker Change: The 57, one it could or could it be better yes, absolutely we had the impact of the strike impacted some some costs associated with that.
Speaker Change: Weather.
Speaker Change: Where we're in northern railroad. So we do deal with weather and Mark and team were able to overcome near term challenges. So we're not going to make excuses on weather.
Speaker Change: Save that for Tomorrow, I guess, and then as far as what.
Speaker Change: What I'd say is the sequential or it's typically about 300 basis points 400 basis points is what I'd factor in and there are some puts and takes with stock based comp timing. So we had a benefit in Q4 stock based comp.
Speaker Change: And so that was a tailwind to us probably have a headwind this quarter. So factor in that as well when you think about quarterly of ours.
Ken: Very helpful. I appreciate the time, thanks, Thanks, Ken.
Ari Rosa: And your next question comes from Ari Rosa with Citi. Please go ahead.
Ari Rosa: Hi, good afternoon.
Ari Rosa: You guys mentioned the <unk>.
Ari Rosa: Lemme offering several comments I just wanted to get a sense for where that is in terms of the rollout of that kind of levels of.
Speaker Change: Customer receptivity.
Speaker Change: The levels of competition, you've seen from depressed truck pricing and where that maybe you could go in 2025.
Speaker Change: And the kind of support it could provide to intermodal volume growth.
Speaker Change: Yes, I think it's a significant part of the story I'm Super pleased with where we sit today, but youre right. Its been against the backdrop of a pretty tough market will really tough market out there.
Speaker Change: I'd give you some perspective, we grew about 12% Q3 to Q4.
Speaker Change: Year over year, I think we are up about 33% when you kind of back out some of that short haul business that that are actually lapping right now so.
Speaker Change: I am pleased with how the team has grown it but we've got a lot of.
Speaker Change: Theres a lot of opportunity left.
Speaker Change: On that train to not only fill it up.
Speaker Change: But also how we begin to high graded and really maximize the value of that and then look we've been candid relative to the new route.
Speaker Change: The <unk> that we saw the opportunity for for a train a day.
Speaker Change: In that corridor and as Keith spoke about the narrative with customers changed when you can sit down and have a discussion around a route the fastest route in the marketplace between Chicago and Central Mexico, But then you also layer in into Atlanta, and Charlotte and some of those southeast markets.
Speaker Change: We're super excited about what that brings to the table also.
Speaker Change: And then even even finally beyond that.
Speaker Change: The upside relative to the reefer business.
Speaker Change: Again.
Speaker Change: Just started describes the surface.
Speaker Change: And in that product, so a lot of opportunity yet to come in the MMX.
Speaker Change: Thank you and we have reached our allotted time for Q&A I would now like to turn the call back over to Mr. Keith Creel.
Speaker Change: Hey, Thank you operator, well listen let me close by again thanking each of you for taking the time to.
Speaker Change: So let us share our results and share a story I think we all understand there is no shortage of uncertainties in the world that we're navigating.
Speaker Change: Today.
Speaker Change: But one thing is certain this company has a track record and this team has a track record for managing those highs and lows lows, we're going to control what we can control we undoubtedly have a very unique network.
Speaker Change: With unique opportunities that in spite of what the macro gives us we're going to create something unique and special which is going to reflect.
Speaker Change: Industry, leading at industry, leading margins and certainly.
Speaker Change: These two industry, leading growth and most importantly industry leading earnings growth.
Speaker Change: So have a safe day, we look forward to sharing our results on our next call.
Speaker Change: You will.
Speaker Change: This concludes today's conference call you may now disconnect.
Speaker Change: Okay.
Speaker Change: Uh-huh.
Speaker Change: [music].
Speaker Change: Uh huh.
[music].
Speaker Change: Uh-huh.